Day trading is never a sure thing, but success ranges with the information that you have. The time that you dedicate to learning about a company can heavily inform your strategy, and your strategy can help to influence your profits. Here are some more tips that can help you start to get an idea of what you'll be dealing with.
1. Liquidity and Volatility: The former means that you can enter or exit a stock at a good price. A liquid stock is one that people are willing to buy and sell at all times. This means that there is a smaller spread, i.e. a little difference between the bid and the ask price of a stock, and little or no slippage, i.e. the expected price of a trade and its actual price. Volatility is a measure of how far the stock can fall or rise in a day - the daily range of a stock.
2. Entry points: There are three main ways to determine when to enter a stock trade. Candlestick patterns display reversal trends in the price of a stock. We then look for volume, whether buyers are supporting the stock at this level. Finally, we look at prior price support, the level at which the stock usually bottoms before reversing.
3. Day Trading Strategies: Scalping is one of the most common and involves selling as soon as a stock becomes profitable. Fading is getting out as soon as a stock's price spikes. This is based on assumptions of the stock being overbought, that buyers will soon get out, and that early buyers are already making profits. A daily pivot strategy involves buying as the stock pivots from daily low to daily high, usually using the above strategies. Momentum involves trading on releases of news or according to reversals.
4. Stop-loss: Setting a stop-loss is a good way to avoid losing a lot of money. It is the lowest value at which you will retain the stock. If the trade takes a turn for the worse that you weren't expecting, you can get out while you can. Reaching a stop-loss means that you should stop trading for that day rather than taking unnecessary risks trying to make up losses. Stay informed by reading the business news so that you know when and what factors may be affecting your portfolio.
5. Stay with your strategy. Don't try to target profits, instead focus on your strategy. By tweaking your strategy if something goes wrong, you will have better chances of being successful the next day.
6. Diversify: By exploring mutual funds and bonds, you won't be putting all of your eggs in one basket. That way, if one sector of the market tanks, you won't necessarily be destroyed.
Day trading is not profitable for most people. In fact, more than half of day traders fail. The best way to go about day trading is through practice and constant re-evaluation of your adherence to your chosen strategy. Be dedicated and patient. If you follow these tips, your strategy will pay off.
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